Whimsiest of tweets affecting Wall Street

I heard an old  saying repeated last night (1 News) – “When America sneezes the world catches a cold”.

Another saying could now be appropriate – “When Donald Trump tweets Wall street sneezes”.

Wall Street went up when the US and China seemed to come to an agreement to avert more tariff increases, but it has dipped after Trump tweets raised uncertainty.

Bloomberg: China Swings Into Action on Trade as Trump Ups Pressure for “Real Deal”

U.S. President Donald Trump said China is sending “very strong signals” following weekend trade discussions in Argentina, as uncertainty remains over what commitments were made between the two nations.

Beijing will start to quickly implement specific items where there’s consensus with the U.S. and will push forward on trade negotiations within the 90-day “timetable and road map,” the Ministry of Commerce said in a statement on Wednesday morning in China.

Hours later, Bloomberg News reported that officials have begun preparing to restart imports of U.S. soybeans and liquefied natural gas — the first sign confirming the claims of Trump and the White House that China had agreed to start buying some U.S. products “immediately.”

Global markets cheered the weekend accord on Monday, only to reverse course Tuesday as doubts emerged over exactly what the world’s two largest economies had agreed on.

NY Times: Trump Warns China He’s “Tariff Man,” Spooking Stock Investors

The trade war is back on — at least as far as investors are concerned.

Stocks sank on Tuesday, as President Trump threatened China with further tariffs, just days after the two countries agreed to a cease-fire in their escalating economic conflict. Referring to himself as a “Tariff Man,” Mr. Trump, in a series of tweets, deepened the murkinesssurrounding the trade agreement, while members of his economic team talked down the prospects of a broad deal.

The fear is that a lasting trade war will undermine the global growth at a time when some of the world’s largest economies are already slowing down, and the United States, a standout performer, is also expected to slow.

Stock markets always go up and down, sometimes seemingly for the flimsiest of reasons.

Add to that are fluctuations now due to the whimsiest of tweets.

The worry is that a whopper of a whimsy may precipitate a stock market slide down a slippery slope.

 

China and US resolving trade war, and ‘China needs NZ’

The trade war between the US and China seems to have been moderated after a meeting between President Donald Trump and President Xi Jinping.

Reuters: U.S., China agree trade war ceasefire after Trump, Xi summit

China and the United States agreed to a ceasefire in their bitter trade war on Saturday after high-stakes talks in Argentina between U.S. President Donald Trump and Chinese President Xi Jinping, including no escalated tariffs on January 1.

Trump will leave tariffs on $200 billion worth of Chinese imports at 10 percent at the beginning of the new year, agreeing to not raise them to 25 percent “at this time”, the White House said in a statement.

“China will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between our two countries,” it said.

“China has agreed to start purchasing agricultural product from our farmers immediately.”

The two presidents also agreed to have talks on other contentious issues such as on structural changes with respect to forced technology transfers, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture.

Meanwhile here in New Zealand, on Q+A last night, ‘Beijing-based economist Rodney Wigram explains why China needs New Zealand’:

 

Nation: David Parker on trade, APEC and globalisation

Trade and Export Growth Minister David Parker: Inclusive Trade Action Group meets in Port Moresby

New Zealand, Chile and Canada today reaffirmed a commitment to work together to advance trade that benefits all their citizens.

Trade and Export Growth Minister David Parker joined Chilean Foreign Minister Roberto Ampuero and Canadian Deputy Minister for International Trade Tim Sargent at a meeting of the Inclusive Trade Action Group (ITAG) during APEC Leaders’ Week in Papua New Guinea.

Trade is crucial to our economies but so is ensuring that the benefits that come from trade are shared by all,” David Parker said.

“The New Zealand Government’s Trade for All agenda ensures that our trade policy delivers for all New Zealanders.

“The meeting of ITAG members recommitted us to this goal and set out some specific objectives to advance inclusive trade in 2019, including building support among our CPTPP partners, and in the WTO and APEC.”

It follows the three countries’ Joint Declaration on Fostering Progressive and Inclusive Trade issued at the signing of the CPTPP in March this year.

https://twitter.com/NewshubNationNZ/status/1063532842372673536

 

Mixed trade deal and financial news

It is difficult to predict what the longer term effects of all this might be.

Whether trade deals or agreements can be reached between the US and Canada and also with China, and also with the EU, will make a difference. In the meantime, the trade wars over tariffs with US subsidies to compensate will continue to disrupt markets.

Trump adds Turkey to his trade wars

Donald Trump is widening his use of tariff threats and imposition of ad hoc tariffs. now targeting Turkey.

Given Trump’s record of withdrawing from or attempting to renegotiate trade agreements, and his spraying around of tariff threats and the ad hoc imposition of tariffs, it will be difficult for the world of trade to have any certainty in what the US may do in the future.

Businesses tend to hate this sort of uncertainty.

Trump is not just using trade weapons to try to drive more favourable deals for the US, he is using them as a punishment.

Washington Post: Trump takes aim at Turkey, announcing doubling of steel and aluminum tariffs in effort to punish country

Turkish President Recep Tayyip Erdogan warned Friday against those who try to “bully” his country, as an announcement by President Trump imposing new tariffs on Turkey sent its currency into free fall.

“The language of threats and blackmail cannot be used against this nation,” Erdogan said in apparent response to Trump’s early-morning tweet saying he was doubling existing U.S. import levies on Turkish steel and aluminum. “Those who assume they can bring us to our knees through economic manipulations don’t know our nation at all,” he said, without directly mentioning Trump or the tariffs.

But the U.S. announcement quickly sent the value of the Turkish lira, already under severe strain, to a record low against the U.S. dollar. The currency crisis has fueled growing concerns in the international financial community and among investors about the health of the Turkish economy.

Trump’s willingness to ratchet up the financial pain on Turkey followed an unsuccessful effort this week to resolve the ongoing dispute between the two countries over Andrew Brunson, an American pastor held on charges that include espionage and trying to overthrow the government.

This seems to be just how trump does things. For Trump, sanctions substitute for foreign policy

For all the talk of “fire and fury” we once heard from President Trump, his administration’s most-frequently used weapons have been not have been explosive — they’ve been financial.

Since entering office, Trump has often used economic sanctions (and, concurrently, tariffs) in an attempt to bend other countries to his will. The administration feels, with some justification, that tough sanctions brought North Korea to the negotiating table.

Now Trump hopes that reinstating sanctions on Iran will also force that country to bargain with the United States and craft a new nuclear deal.

But the evidence that these sanctions are working as a foreign-policy tool isn’t convincing. And there is considerable concern that the Trump administration is overusing them while neglecting other important facets of foreign policy, like simple negotiations or coordination with allies.

The Washington Post’s Carol Morello recently outlined just how prevalent sanctions have become in the Trump era in a recent article. She found that during just one month — February 2018 — the United States had imposed sanctions not only on North Korea, but also groups or individuals in Colombia, Libya, Congo, Pakistan, Somalia, the Philippines, Lebanon and more.

Though their use may be increasing, sanctions are not a new idea — they date back hundreds of years, if not further. Yet academic research has found that they often don’t work as intended. One study looked at 200 sanctions from between 1914 and 2008 and found only 13 that were clearly instrumental in achieving their creators’ aims.

The problem isn’t necessarily that they can’t inflict financial damage on a foe (given the power the United States holds over the global economy, that much is now a given). Instead, the issue is that this damage doesn’t always contribute to any logical foreign policy goal.

Using tariffs and sanctions is a heavy handed way of trying to get what Trump wants – there may be some successes in the short term, but damaging the finances of countries can have much wider effects (like for international investors and those who trade with the targeted country).

And Trump risks burning a lot of diplomatic bridges. Establishing a record of mistrust and unreliability may end up biting the United States on the bum.

 

Trump threatens countries who don’t negotiate ‘fair trade’ deals with tariffs

The United States negotiated a wide ranging trade deal with eleven Pacific rim countries in the Trans-Pacific Partnership Agreement.

Donald Trump withdrew the US as son as he became president. The eleven remaining countries went on to ratify the agreement without the US. Since then Trump has reconsidered – Trump Proposes Rejoining Trans-Pacific Partnership – but hasn’t done anything more than pontificate.

Trump has also attacked other trade agreements and trading arrangements, including with:

With all this chaos going on Trump has just issued another  threat:

Trump may succeed in bullying some countries into better deals for the US, but this ultimatum approach is not good for getting mutually beneficial and long lasting trade agreements.

And it is not good for international relations generally.

Playing the tough guy (except with Russia) may keep pleasing Trump’s dedicated base supporters,

And this is also having an impact on the US, with farm subsidies, already a major factor in trade issues, set to increase.

WSJ: Trump Administration to Offer About $12 Billion in Farm Aid to Ease Concerns Over Trade Disputes

The Trump administration on Tuesday is expected announce a plan to extend some $12 billion in emergency aid to farmers amid growing concerns that the U.S. agricultural sector could suffer from President Donald Trump’s escalating trade dispute with allies…

US agriculture has long been bolstered by subsidies and tariff protection – and still needs more aid to survive. Nuts.

WSJ: The Many Ways Trump’s Trade Disputes Are Affecting the Auto Industry

Auto-industry representatives are expected to argue during a U.S. Commerce Department hearing Thursday that President Donald Trump’s proposed tariffs on auto imports would cost jobs and increase car prices.

The White House in May asked the Commerce Department to investigate whether it could use a national-security law to impose tariffs of up to 25% on imported vehicles and car parts. Mr. Trump has argued trade barriers are needed to pressure manufacturers to build more goods in the U.S. and expand factory jobs.

WSJ editorial: Trump Rides a Harley—to Europe

Donald Trump’s trade war has been an abstraction for most Americans so far, but the retaliation has now begun in earnest and the casualties are starting to mount. The President’s beloved stock market took another header Monday on news of more restrictions on investment into the U.S., and the Dow Jones Industrial Average is now down for 2018.

The rest of the world can’t avoid being affected by Trump’s trade interventions and tariffs, but at least they can trade amongst each other. In the meantime Trump is isolating the US, and burning a lot of diplomatic and good faith bridges.

Trump’s trade chaos could get very messy, and not just with trade wars.

Gingrich predicts a lot of global conflict over trade

Newt Gingrich, who works closely with Donald Trump, suggests a lot of conflict over Trump’s approach to international trade.

“I think if you apply a new standard, which is, is this good for the United States economy, as opposed to, is this good for some kind of global system, you’re going to be in a lot of conflict with a lot of countries.”

In some ways a global trade shake up may initiate some change for the better, but it also risks changes or the worse.

This comes down to trying to impose one sided trade conditions using one’s ‘enormous leverage’ versus conducting good bi-lateral trade relationships.

Taking a heavy handed bully approach may achieve some short term benefits for the US, but in the longer term it is likely to discourage trade with the US and encourage trade agreements and relationships between other countries.

And there could also be negative consequences in the US as well, financially for the country as well as politically for some.

Trump accuses China of sabotaging North Korea ‘deal’

Donald Trump and Kim Yong Un made a fairly vague agreement in Singapore a month ago.

US Secretary of State Mike Pompeo has just visited North Korea and the outcome of that meeting looks shaky, despite Pompeo’s positive report:

“We had many hours of productive conversations. These are complicated issues, but we made progress on almost all of the central issues. Some places a great deal of progress. Other places, there’s still more work to be done.”

See North Korean denuclearisation talks with US Secretary of State – “regrettable”. It has also been reported that North Korea accused Pompeo of acting like a gangster.

Since then Trump has tried to blame China, and added trade to the mix of rhetoric.

Republican Senator Lindsey Graham has also accused China of interfering: China Sabotaging North Korea Nuclear Talks Over Tariff Trade War

SEN. LINDSEY GRAHAM (R-SC), SENATE ARMED SERVICES COMMITTEE: I see China’s hands all over this. We are in a fight with China. We buy $500 billion worth of goods from the Chinese. They buy $100 billion from us. They cheat and President Trump wants to change the economic relationship with China.

So, if I were President Trump, I would not let China use North Korea to back me off of the trade dispute. We’ve got more bullets than they do when it comes to trade. We sell them $100 billion, they sell is $500 billion, we can hurt them more than they will hurt us. And all we’re looking for is for them to stop cheating when it comes to trade.

There’s no doubt in my mind that it’s the Chinese pulling a North Koreans back. And to our North Korean friends, can’t say the word friend yet. You asked Pompeo, did he sleep well? If you knew what I knew about what we could do to the leadership of North Korea, you wouldn’t sleep very well.

Threatening words from Graham on top of Trump’s Twitter bombast.

China and North Korea border each other and have been closely connected politically for a long time. China supported the north in the Korean war in the 1950s.

Kim visited China before his summit with Trump, and he has been back to China since.

So of course China has some sort of influence in North Korea. Are they “exerting negative pressure”? I guess that depends what side of the political and international fence you are on.

Threatening “more bullets” in the escalating trade war with China and threatening “If you knew what I knew about what we could do to the leadership of North Korea, you wouldn’t sleep very well” could be  interpreted as a bit of negative pressure too.

I just hope trade and military relations don’t go into a negative spiral that ends up in a crash and burn.

Trump flames and shames on Harley Davidson

Donald Trump frequently uses high profile shaming, which is an abuse of power. When in response to the trade and tariff war started by Trump Harley Davidson announced they would move some manufacturing offshore to reduce loses due to tariffs Trump has given them a public bollocking.

Reuters:  Trump blasts Harley plan to shift U.S. production to avoid EU tariffs

U.S. President Donald Trump on Monday slammed Harley-Davidson Inc after the motorcycle maker said it would move production for European customers overseas to avoid retaliatory tariffs that could cost it up to $100 million per year.

Harley-Davidson, the dominant player in the heavyweight U.S. motorcycle market said earlier on Monday it would not pass on any retail or wholesale price increases in the EU and instead focus on shifting some U.S. production.

Trump said he has fought hard for the company and was surprised by its plans, which he described as waving the “White Flag.”

“I fought hard for them and ultimately they will not pay tariffs selling into the E.U., which has hurt us badly on trade, down $151 Billion. Taxes just a Harley excuse – be patient!” Trump said in a post on Twitter.

Typically and also alarmingly:

Trump is trying to run a country with impulsive public announcements, flip flops, bullying, threatening, shaming and tantrums.

He seems to have no comprehension of the complexities of policies he promotes, nor does he seem to comprehend the inevitably of unintended consequences.

This may give him some successes, but with inevitable failures, and the number of people he pisses off growing, this could get very messy.

It is looking increasingly like Trump Deranged Syndrome.

Q+A today – business and trade

On Q+A this morning:

Why is business feeling so gloomy? Surveys show business confidence has been persistently low since the Labour led Government took office. Corin Dann talks to Finance Minister Grant Robertson.

Plus, what could an NZ-EU Free Trade Agreement mean for you? And will European farmers give up some of the subsidies that make trade harder for our food producers? European Trade Commissioner Cecilia Malmstrom joins us.